Scottish Government

MORTGAGE ARREARS AND REPOSSESSIONS IN SCOTLAND

C hapter Two BACKGROUND

objectives

2.1. This chapter presents a review of past research on mortgage arrears and repossessions. The objective was to collate knowledge of the processes and circumstances of mortgage arrears and repossession in order to understand better the circumstances and policy implications for Scotland. The review also assisted in developing the primary research agenda. Overall, the research on mortgage repossessions points to a lack of information on repossessions in Scotland compared to the UK as a whole (Bheim & Taylor, 2000). Most of the available literature and statistics reflects England/Wales or UK-wide research and data. However, this was examined in order to place this study in a conceptual framework and to compare the findings in Scotland.

2.2. The second background area covered in this chapter is the legal one. It covers the routes to obtaining a repossession decree in Scotland, and describes a new Act - the Mortgage Rights (Scotland) Act 2001 - which came into being during the course of the research. Some understanding of the legal background is needed to contextualise court figures, and better understand lenders' procedures and borrowers' experiences.

Literature review

Changing levels of repossession

2.3. Ford et al (2001) tracked the policy developments of the last twenty years that have led to Britain becoming predominantly a nation of homeowners. Sixty eight per cent of the population now live in their own homes. The first of these initiatives was the introduction of the right-to-buy scheme (RTB). A related aspect of this was that restrictions were imposed upon local authorities on the use of the capital generated from these sales for replacement building. Together, these policies resulted in a reduction of good quality housing available to rent (Ford et al, 2001).

2.4. In the 1980s, the government deregulated the financial market, allowing new credit providers to emerge. This has had a delayed effect but has now brought about a more competitive mortgage market, with lenders offering mortgages to those who would previously have been excluded.

2.5. These legislative changes have produced a greater diversity of owner-occupiers. In Britain twelve per cent of mortgage borrowers are in low-income households, and owner-occupation is now the largest housing sector for all low-income households (Burrows & Wilcox, 2000).

2.6. In the 1980s, the government deregulated the labour market; dismantling the wages council, reducing the power of the trade unions and reducing the level of employment protection for workers. New employment legislation was the cause of the changes in many cases. Ford et al (2001) remark that this, together with the effects of innovations in technology, globalisation and labour market restructuring resulted in unstable employment, which still poses a threat to sustainable home ownership.

2.7. Because of these changes in the UK, together with the effects of recession in the early to mid-1990s, more people experienced repossession. This peaked in 1991 with numbers reaching 75,540. There had been a rapid rise in interest rates in the late 1980s, and the peak in repossessions in 1991 was in part a consequence of the high interest rates at that time. Repossession became a major social problem affecting nearly half a million (454,280) households (containing 1.3 million adults and children) over the period 1990-98.

2.8. UK-wide levels of arrears and repossessions are now lower than in the early nineties. However, they appear to have stabilised at a much higher level than in the 1970s or 1980s (Ford et al, 2001). Six hundred and fifty households a week lost their homes in this way in 1998 (Nettleton et al, 1999). This should be contextualised by highlighting the growth in the number of mortgages, which, according to CML figures, has increased every year since 1970 (Ford et al, 2001).

Perceptions of risk

2.9. Evidence for England and Wales from the National Association of Citizens Advice Bureaux shows that in the recent market interest rates have remained low whilst property prices have generally risen. However, the unprecedented rise in repossessions in the early 1990s and the appearance of negative equity have continued to cast a "long shadow" over the housing sector (CAB, 1999). It should be pointed out that house prices have not risen as steeply in Scotland.

2.10. This highlights the concept of risk in the modern mortgage market. A distinct feature of modern society is the perception of risk (Nettleton, 1997). Giddens (1998) reported that people constantly calculate and assess the potential risks that could affect their lives, such as the risk of obtaining and maintaining a mortgage. Secondary analysis of the Survey of English Housing (SEH) has shown that perceptions among young people of risk associated with home ownership have increased since the 1980s (Ford, 1999). However, evidence from our research (Chapter 7) suggests that many borrowers who get into difficulties did not assess the risks involved in their borrowing adequately, or if they did, may have simply ignored the risks.

2.11. The probability of one's home being repossessed is usually calculated on a year on year basis, which understates the likelihood of individuals being affected at some time in their lives. This is neatly illustrated by Holmans (1997)

"[In] 1990-95 the average number of possessions each year was only 0.6 per cent of all mortgages outstanding. This implies that the risk of being dispossessed was still very small, only 1 in 170 (approximately). That, though, is a single year risk, whereas households with mortgages are at risk to mortgage default all the time they have mortgages --- the average length of time that a household has a mortgage appear to be between 30 and 35 years²… With a period at risk of 35 years, an annual risk rate of 0.6 per cent would result in a total risk rate over the whole period of 19 per cent, ie a risk of losing the home through mortgage possession at some stage of nearly 1 in 5. This is the grim arithmetic of Bomber Command" (p191, Holmans, 1997).

2.12. It is shown later in the report that risk is highest early on in the loan. This however does not contradict the above, as Holman's figure is overall, of all mortgages outstanding; his rate for recent borrowers would be higher.

'Reasons' for repossession

2.13. Much has been reported about why repossession occurs. Individual household difficulties are the most commonly cited reasons. Certainly, difficulties for individual borrowers have an impact, and this can be considered in the context of the general profile of those at risk of repossession. Individual-level 'reasons' may reflect individual and household changes such as

• relationship breakdown, (Moroney & Harris, 1997; Ford et al, 2001; CAB, 1999)
• illness and loss of employment (Shelter, 1998)
• financial over-commitment (Burrows and Ford, 1997; CAB,1993).

Often, a combination of these factors is at work.

2.14. There is also evidence that helps to quantify the impact of these factors. Burrows and Ford (1997) investigated the characteristics of householders in mortgage arrears for England and how these changed over time. This was based on data from the Survey of English Housing. Loss of income because of unemployment or a drop in earnings was the most commonly cited reason (70% of cases) for arrears. A quarter of all households in arrears mentioned household changes (loss of a partner or having a baby ³, for example) as a contributory factor. A similar proportion mentioned an increase in mortgage or other household payments as a factor (although this was rarely stated in isolation). From a later Survey of English Housing in 1998/9, almost one in four households in arrears cited the loss of a partner (either through relationship breakdown or death) as a contributory cause of arrears (Ford et al, 2001). CAB (1999) gives many examples of client experiences that confirm the significant role that relationship breakdown has in contributing to the likelihood of repossession.

2.15. There are other factors that compound the negative experiences and increase risk; for instance, lack of understanding of who is protected by Mortgage Indemnity Insurance and appreciation of the dangers involved in taking out secondary secured loans. A common misapprehension relates to Mortgage Indemnity Insurance. Some borrowers do not realise that, although they pay the insurance premium, it is the lender and not the borrower that is the beneficiary (CAB, 1993). Those with loans secured on a property are not generally entitled to ISMI if their situation deteriorates and they find themselves unable to pay (CAB, 1993). Borrowers who take out secondary loans can find that they face repossession action by the second lender for relatively small sums, even though the first lender has agreed not to repossess (CAB, 1993).

2.16. Other factors that contribute to the likelihood of repossession include restrictions to the ISMI, an absence of private MPPI; and the lack of ownership tradition and appropriate information and advice (Forster & McCleery, 1999).

Profile of those most likely to be repossessed

2.17. The above factors underlying increased risk of repossession do not operate independently of other circumstances. Burrows (1998) describes the personal characteristics of people who are most likely to suffer mortgage difficulties as:

• first-time buyers
• younger people
• the unemployed, and
• those with mortgages at, or close to, 100%.

These groups, considered as a whole, will have relatively low incomes and, in context, heavy commitments.

2.18. Other research gives additional categories of those at risk experiencing mortgage difficulties. In 1996/97 Grove (1998) found that the incidence of mortgage arrears was disproportionately high among the following groups:

• the self-employed (account for 34% of arrears cases, but only 18% of borrowers)
• the divorced or separated (account for 23% of arrears cases, but only 10% of borrowers) and
• those who bought properties between 1986 and 1988 (account for 28% of arrears cases, but only 18% of borrowers).

2.19. Pryce & Keoghan (1999) provide further detail on those most at risk of losing their homes, with single parents, households with three children and those in manual employment amongst the groups at risk. A correlation with low income once more seems evident. Furthermore, Pryce & Keoghan (1999) found that the lowest rates of take-up of insurance e.g. MPPI, were amongst these groups.

2.20. Christie (2000) noted that there had been an increase in lenders considering each partner equally at the time of purchase. Sustaining a mortgage in this situation requires both partners to maintain regular, consistent employment. For those in low-income households, there is little room for manoeuvre if one partner stops working. This can readily happen, because house purchase can be a preliminary to starting a family. Also, job loss is more probable when two jobs are involved.

Effects of repossession on individuals and families

2.21. Repossession has many negative effects on health. The experience of mortgage arrears is such a stressful life event and is now so common that it constitutes a 'major public health issue' (Nettleton, 1998). In a qualitative study of families that had experienced repossession, Nettleton found that stress had led to effects such as loss of hair, chest and heart problems, slower recovery from illness and exacerbation of existing conditions such as asthma, eczema and epilepsy.

2.22. In the same study of families, Nettleton investigated the experiences and the health and coping strategies employed by parents and children in the event of repossession. They interviewed females whose partners had left or 'disappeared' and found that, not only were these women left without means to pay the mortgage, they were often left with debt that their partners had taken out in joint names and which they had not been aware of at the time. Other studies of the personal experience of repossession (Nettleton et al, 1999) point to distressing socio-psychological and health consequences.

2.23. Ford et al (2001) found that the experience of mortgage arrears and repossession is a very private one, and that people rarely speak about it with their friends and family. The distressing nature of the experience was compounded by the legal and administrative agencies that borrowers had to deal with, as they were not perceived to be taking into account the emotional stress and upset involved.

2.24. In the event of mortgage arrears and repossession, Christie (2000) noted that the responsibility for organising income and childcare, and dealing with creditors, courts and money advisors, is borne disproportionately by women. Men and women 'devise different and unequal strategies for managing household finances'.

Public-assistance and private-insurance

2.25. There are two support schemes that could protect homeowners in times of difficulty. The first is publicly funded and is known as Income Support Mortgage Interest (ISMI). Private insurance can be purchased to cover some risks (typically accidents, sickness and unemployment) and this is known as mortgage payment protection insurance (MPPI).

2.26. The Government has withdrawn mortgage interest tax relief (MIRAS). In 1995 the Government reduced the cover provided by ISMI by requiring most eligible borrowers in difficulty to wait for 9 months before they could get this benefit. This means that there is less help for homeowners, especially during times of financial difficulty.

2.27. Pryce (1998) examined the interaction between reductions in ISMI and the take up of MPPI. The substantial reductions to ISMI that were introduced in 1995 were implemented on the assumption that they would encourage an equivalent rise in the take-up of MPPI. However, there was subsequently only a small increase in the number of borrowers taking out MPPI. Pryce (1998) found that MPPI is highly unresponsive to ISMI and he suggested that, holding everything else constant, a 10% reduction in ISMI would result in less than a 0.01% increase in take-up of MPPI. Take-up is more responsive to changes in private cover and in the probability of being out of work.

2.28. In the past MPPI policies have had a poor reputation. Ford et al (2001) confirmed earlier research nearly ten years ago (CAB, 1993), finding that claimants were often refused a pay-out on their MPPI policies. Furthermore, they found that the complexities of the issues and policies left many rejection decisions open to question.

2.29. The take-up of MPPI may have been constrained by the cost of the policies, which some believed to be unjustifiably high (Burchardt & Hills, 1997). Some borrowers may cancel their policies because of the high cost, especially the low-income borrowers who are most at risk (Ford et al, 2001). Some borrowers do not feel that MPPI is good value for money and have a mistrust of insurers who, they believe, will look for a reason not to pay (Kempson et al, 1999). However, the take-up of MPPI has increased in recent years (now approximately 23% according to CML/ABI estimates) and currently 85% of claims are being met. These improvements flow from the initiative of the Government/CML/ABI to improve the product. Many recent repossessions, and many of the loans taken out by the borrowers interviewed for this research, relate to the period before these improvements to MPPI.

2.30. The CML has been aware of these difficulties for some time and has been working in conjunction with the Association of British Insurers (ABI), to develop a set of criteria to be incorporated into MPPI policies, known as the baseline policy. This would include borrowers on temporary employment contracts, as long as they could show that they were consistently employed on these contracts.

Mortgage to Rent/Mortgage Rescue Schemes

2.31. Under a Mortgage to Rent/Mortgage Rescue scheme a housing association would effectively buy someone's home when they were in financial difficulty. The household would then pay rent instead of mortgage repayments, and the housing association, as the owner of property, would take care of the up-keep of the property. A key difference is that the housing association charges rent and so, if unemployed or if income is sufficiently low, the occupier can claim housing benefit.

2.32. The government was keen to involve housing associations and financial institutions in mortgage rescue packages to ease the burden on the housing departments of local authorities. Sheridan (1999) has looked at such rescue packages in Scotland and identified their advantages and disadvantages.

2.33. The benefits to tenants of mortgage rescue packages were identified as

• the opportunity to remain in the family home and avoid the frequent moves involved in obtaining B&B accommodation, followed by temporary accommodation before finally being allocated a local authority property. This has an immensely negative impact on the whole household, and
• the chance to receive help even though the borrower may not be deemed by the local authority to be in 'priority need'.

2.34. The benefits to local authorities of mortgage rescue packages were identified as

• avoiding the necessity of allocating one of their properties, and
• avoiding the provision of B&B and temporary accommodation.

2.35. The disadvantages of mortgage rescue packages were identified as:

• they are restrictive in whom they can accept, and
• the rents are often very high to cover costs (Sheridan 1999).

2.36. Overall, the existing Mortgage to Rent/Mortgage Rescue Schemes were not able to help as many borrowers in default as the government had originally anticipated (Sheridan 1999). However, some changes are recommended for the National Scheme.

2.37. The Executive has set aside an initial sum of 9m for the implementation of a national Mortgage to Rent Scheme, which would be run by Communities Scotland, and facilitated by a National Co-ordinator, a new appointment by Ministers. The National Co-ordinator would facilitate the scheme and offer flexibility for lenders to engage with a range of housing associations across the country at a low administration cost. Support would also be offered to participants within the operation of the scheme.

2.38. The National Scheme will operate similarly to the local schemes but will provide a subsidy for housing associations to put towards the acquisition costs of property, thus bringing the rental stream down to a social rented level. It has been proposed that this subsidy would be subject to a maximum of 25,000 per property. In addition to the subsidy, it has been proposed that a grant be offered to bring the property into good repair. This would be of up to 6000.

2.39. These resources are being directed towards the features that have most limited the provision of the scheme. These were: that potential beneficiaries could not afford the rents; that housing benefit did not cover the rent; and that the property was in disrepair and there were no resources to bring it up to standard.

Mortgage Advice

2.40. The Consumers Association (2001a) has, for many years, argued that the quality of mortgage advice from mortgage lenders and others in the industry has been unacceptable. In May 2001, a report concluded that the quality of mortgage advice obtained by researchers posing as first-time buyers was poor. From a sample of 48 institutions visited (these included estate agents and independent financial advisers as well as the major mortgage lenders), 47 did not offer good all round advice.

the mortgage Code ⁴

2.41. The Mortgage Code defines standards of good practice in the buying and selling of mortgages. It is intended to provide protection for the borrower. It was introduced for lenders in July 1997 and for brokers in April 1998. The Code provides valuable safeguards for customers, helping them understand how lenders and brokers are expected to deal with them. It sets out

1. How mortgages should be arranged by lenders and brokers.

2. What information customers should receive before committing themselves.

3. How a mortgage should be dealt with when it is in place.

2.42. There are several requirements that lenders and brokers have to comply with at the outset, and therefore actions that customers should expect

1. Lenders and brokers must confirm their adherence to the Mortgage Code.

2. All potential customers must be given a copy of the leaflet 'You and Your Mortgage' at the outset, which outlines the minimum standards which mortgage lenders and brokers have to meet under the Mortgage Code.

3. Customers must be told which level of service under the Mortgage Code they can provide, based on three different levels:

a) Advice, and a recommendation on which mortgage is most suitable for the customer

b) Information on the different types of mortgage product on offer, so that customers can make an informed choice, or

c) Information on a single mortgage product only, if only one mortgage is available or if the customer has already made up his or her mind.

4. Confirm the customer's rights under the Data Protection Act 1998 of access to all personal records.

5. Explain the procedures in place for dealing with customer complaints.

6. Confirm in writing, before the mortgage is completed, the level of service they have provided and, if advice and a recommendation, the reasons for the mortgage recommendation. This latter level of service will usually be based on a full review of the customers' circumstances - often referred to as a 'fact-find'.

2.43. In addition, brokers must

1. Advise if a potential loan is accessed from the marketplace as a whole or from a panel of selected lenders

2. Give details on whether they represent the customer or are the appointed representative or agent for the lender.

3. Disclose to customers if they will receive a fee from the lender for introducing the mortgage.

2.44The Code has 10 main commitments to which lenders and brokers must adhere. These are to

1. Act fairly and reasonably with customers at all times

2. Make sure that all services and products keep to the conditions of the Code, even if they have their own terms and conditions

3. Give information on services and products in plain language, and offer help if there is any area that the customer does not understand

4. Help the customer to choose the mortgage that fits his or her needs

5. Help the customer to understand the financial effects of having a mortgage

6. Help the customer to understand how his or her mortgage account works

7. Make sure that the procedures staff follow reflect the commitments set out in the Code

8. Correct errors and handle complaints speedily

9. Consider cases of financial difficulty and mortgage arrears sympathetically and positively

10. Make sure that all services and products meet the relevant laws and regulations

2.45. Specifically, the section of the code which deals with financial difficulty commits lenders to

• considering cases of financial difficulty and mortgage arrears sympathetically and positively
• trying to contact borrowers to discuss the matter
• asking borrowers in financial difficulties to let lenders know as soon as possible
• doing all they can to help borrowers to overcome their difficulties

• following the general principles of the CML's Statement of Practice on Handling Arrears and Possessions, including

1. with borrowers co-operation, developing a plan for dealing with financial difficulties and clearing the arrears, consistent with both borrowers' and lenders' interests

2. possession of property will be sought only as a last resort when attempts to reach alternative arrangements with borrowers have been unsuccessful.

• co-operating with recognised debt advisors, for example

• Citizens Advice Bureaux
• Money advice centres, or
• The Consumer Credit Counselling Service.

legal Background

2.46. Two background legal topics need to be covered at the outset of this report.

• the first is a lay person's guide to the three legal routes for administering repossession in Scotland, before the Mortgage Rights (Scotland) Bill becoming law. Understanding of these is needed to understand the procedures used by lenders when obtaining a repossession decree and why the figures recorded by the courts do not include all repossessions
• the second is a brief description of the Mortgage Rights (Scotland) Act 2001 which was in preparation during the course of this project, and became law in December 2001. This is covered because borrowers and lenders have been asked to comment on the new Act and an understanding of the law is needed to contextualise the responses.

Legal processes

2.47. Further detail on the legal process has been detailed in the scoping study (Gibb et al, 2000) which preceded this report.

2.48. There is more than one legal route which lenders can take when dealing with repossession. The following description of the legal processes refers to the situation prior to the Mortgage Rights (Scotland) Act 2001,which is relevant to the research period of December 2000 to December 2001.

2.49. A 'Notice of default' and a 'Calling-up Notice' are 'softer' approaches to repossession than applying for a repossession decree under Section 24, Conveyancing and Feudal Reform Scotland Act (1970).

2.50. A 'Calling-up Notice' can be used when the borrower wishes to hand over the property. He or she can be asked to sign a calling up notice. This is the quickest route. It can also be used as a precursor to applying for a repossession decree under the Conveyancing and Feudal Reform Scotland (1970) Act. Following a formal letter of default or a calling up notice, lenders only have the right to repossess without going though the court if an eviction is not needed. Calling up notices can be issued after only one month's payment is missed.

2.51. Once a repossession decree is granted, and a solicitor has carried out the litigation, the eviction can be arranged. The property is then passed to a selling agent and, once a buyer has been found, a solicitor undertakes the conveyancing. The lender then tells the solicitor the total debt figure. If there is a surplus the solicitor pays the second charge holder and/or the borrower. Following the sale, the solicitor produces a completion statement. Lenders are obliged under the Building Societies Act (or the equivalent for banks) to send borrowers a statement of the sale price.

2.52. If there is a surplus, this can be consigned to the Sheriff Court for holding, as there is a provision in the Conveyancing and Feudal Reform Scotland (1970) Act for this, or the lender can hold the surplus for the borrower.

Mortgage Rights (Scotland) Act 2001

2.53. An important change that occurred during the course of this project is that the Mortgage Rights (Scotland) Act 2001 became law in December 2001. The act has not changed the basic repossession process described above, i.e. calling up notices, notices of default and Section 24 Warrants. It has added to them by requiring the provision of notices to occupiers.

2.54. This Act will have an effect on borrowers' and lenders' experiences of repossession in Scotland, and it is important to bear in mind that all the opinions and experiences which are reported here, are those which took place prior to its becoming law.

2.55. The act creates significant new rights for owner-occupiers. Previously, lenders could apply to the court for a repossession decree and, if it could be proved that arrears existed, the court granted the decree. There was no opportunity to introduce any consideration of the reasons for the mortgage arrears or the circumstances of the household. Technically the court could sist the proceedings; however this was hardly ever done, as is shown in Chapter 4.

2.56. When the property is the sole or main residence, the act allows the mortgage debtor, the owner (if different), their spouse and their partners, in certain circumstances, to apply to the courts when their creditor was seeking to repossess. This applies not just to mortgages but to subsequent loans. This will provide applicants with the opportunity to set out the circumstances behind the mortgage difficulties and repossession action, and allow the courts to take a balanced decision after hearing from both the lender and debtor. The act gives the court the power to grant a Section 2 order, which may provide time for the debtor and their household to arrange alternative accommodation. When it appears possible to get the mortgage back on track, the order can be made with certain conditions and for such a period as the Sheriff thinks suitable in the circumstances of the case. In Scotland, under the new system, the lender would then have to go back to court to gain a repossession decree. In England under the existing system, a suspended order can be re-activated without going to court.

2.57. Granting a Section 2 order is a matter for the discretion of the sheriff. The test is whether the court 'considers it reasonable in all the circumstances' to grant the suspension. The court has to consider

• the nature of and reasons for the default
• the applicant's ability to fulfil the obligations under the mortgage within a reasonable period
• any action taken by the creditor to assist the debtor to fulfil those obligations and
• the ability of the applicant and any other person residing at the house to secure reasonable alternative accommodation.

2.58. The experience in England, where the legislation can suspend granting repossession decrees for many years, shows that 45% of total debtors in mortgage default can get back on their feet and stay in their homes ⁶. There are important differences between the English and Scottish legislation. These have been raised by lenders, and are discussed in Chapter 6.

2.59. The experience of advisers in rent arrears, small claims and debt cases is that different sheriffs take varying approaches to dealing with these cases. There is some research evidence on small claims procedures, which suggests that the nature and formality of the procedure followed varies significantly from sheriff to sheriff (Scottish Office Central Research Unit, 1991). In addition, research on the application of the Debtors (Scotland) Act suggests that sheriffs take varying approaches in dealing with applications for time to pay (Scottish Office Central Research Unit, 1999).

Financial Services Act 2002

2.60. The FSA will bring in new legislation on lender regulation. The new regulations will come into force in autumn 2002, with the implementation of the rules on post-sale disclosure and arrears and repossessions being delayed until six months after this. This will apply to short-term secured loans and to mortgages.

2.61. The most relevant sections of this include

• regulation of advertisements
• information to consumers (rules relating to the content of financial promotions; disclosure requirements before and after sale; Comparative Tables to allow consumers to search the products available in the marketplace; and consumer education initiatives by the FSA)
• proposals for mortgage regulation include provisions for collection of shortfall debt and the proposed incorporation of the six year rule as set out in the fact sheet
• handling of arrears and possessions
• requirement of disclosure of information by firms to consumers at different stages, i.e.
• • before the consumer submits an application form to the lender
  • at the time the lender makes an offer to the consumer
  • at the start of the mortgage before the first payment is due, and
  • over the life of the mortgage.

2.62. Given that about 40% of all mortgage sales involve the use of an intermediary, the effectiveness of any pre-application disclosure regime depends on intermediaries as well as lenders providing pre-application illustrations to consumers. The FSA will impose a rule requiring lenders to take reasonable steps to ensure that intermediaries provide pre-application information.

2.63. Responsible lending is dealt with in the act - lenders are required to pay due regard to the interests of their customers and treat them fairly. In the context of mortgage lending, this means that lenders must be able to show that they have taken into account the customer's ability to repay the loan.

2.64. The FSA proposes rules about charges for mortgages in three areas

• early repayment charges:- in particular requiring such charges to be disclosed and expressed in monetary amounts in the disclosure material previously described
• arrears charges: - where it is proposed to require disclosure of the charges and to limit them to a reasonable estimate of the additional administration involved in arrears cases; and
• exorbitant charges: - where the FSA proposes to introduce a rule preventing lenders imposing exorbitant charges on consumers.

2.65. Full information on the FSA proposals can be seen on their web site at www.fsa.gov.uk . The relevant consultation paper is CP98 (The Draft Mortgage Sourcebook, including Policy Statement on CP70).

implications

2.66. The review of literature has revealed

• there is little previous research on mortgage arrears and repossessions that has focused on Scotland
• the higher levels of home-ownership in the nineties have been caused by Right-to-buy and an increase in the ease of obtaining a mortgage in an increasingly competitive mortgage market
• the main reasons for repossession are unemployment, partnership breakdown and secondary debt
• the profile of those most likely to experience mortgage arrears and repossession includes first-time buyers, younger people, the unemployed and those with 100% or nearly 100% mortgages
• the effect of repossession on households, and children within those households, is overwhelmingly negative and
• MPPI has not served to fill the gap left by the reduction of ISMI.